Merkel's Brexit NIGHTMARE: 18000 German car firm jobs at risk

Our Sponsors:

After Deloitte’s Car industry report last week, experts give their verdict on what’s to come for Germany’s flagship industry and the market in which one of every five German cars is sold.

Deloitte’s report was a grim read for Germany’s world leading car industry.

The Brexit Briefing paper looked at how the increasingly likely “hard Brexit” would impact the German automotive industry, still flying after new year reports of increased productivity and profits.

The motor trade has been significant part of Germany’s better-than-expected GDP growth that rose to 2.5 percent last week.

The key findings from the report show a “no-deal” Brexit scenario – with the UK using WTO duties and the Pound falling 10 percent against the Euro – would force a cumulative cost increase of €1.9 billion, 15 percent, for automotive manufacturers in the United Kingdom.

Simply put, if Mercedes-Benz decided to pass on this cost increase to their customers, the price of a car in the United Kingdom would increase by £3,277 (€3,700, and by as much as £4,960 (€5,600) for cars manufactured in Germany.

Deloitte estimate that the price increase would lead to an overall sales decrease of 550,000 vehicles, 19 per cent, in the United Kingdom with German vehicle exports declining by 255,000 units, 32 per cent.

At the bottom line, turnover would decline by just under £11billion (€12.4bn) hitting profits by €900million. Deloitte calculates 18,000 German jobs are threatened by Brexit.

Richard Gane, director and automotive sector specialist at supply chain firm, Vendigital, told Express.co.uk a hard Brexit, without any transitional arrangement, would leave a significant dent in many EU suppliers’ order books.

He said: “For German car parts makers, currently serving manufacturers in the UK, this outcome could have serious consequences.

“There is a strong likelihood that German car prices will rise after Brexit, especially if there is an end to tariff-free trading.

“However, the premium brands, such as BMW and Daimler, will have more scope to adjust margins – without passing price increases on to consumers – than those serving volume markets, such as VW.”

Jonathan Watson, Chief Market Analyst at Foreign Currency Direct, told Express.co.uk how the Pound can affect the price of a German car.

He said: “With some forecasters predicting GBP-EUR could easily drop nearer parity, or one for one on a no deal or Hard Brexit, it may become more expensive to buy German cars.

“Looking at the standard Mercedes C-class costing £28,160, a 12 per cent increase – based purely on the exchange rate difference if we drop to parity from today’s rates – would see a new price of £31,500 whilst top range models currently at £67,120 could rise by £8,000 to £75,174.”

Mr Watson says that with almost 20 percent of German auto sales going to the UK, Britain is by far their largest market outside of Germany.

He said: “It won’t therefore just be the Brits suffering from rising car prices, German car manufacturers would be squeezed too.”

However, a stoic rebuttal of German manufacturing fragility comes from Justin Benson, Head of Automotive at KPMG in the UK.

He said: “The world’s economies are generating demand for vehicles that people aspire to own so although I see Brexit as something German firms should be planning for, electric vehicles, autonomous vehicles and ‘mobility as a service’ are bigger issues for car companies.”

However, Vendigital’s Mr Gane suggests German car firms have become an important lobbying tool for the UK Government.

He said: “The considerations of EU-based automotive suppliers are likely to remain centre stage in the ongoing Brexit negotiations and they could become a useful bargaining chip for the UK Government.

“The more time that passes without securing a trade deal, the more concerned EU-based component manufacturers are becoming.

“They are lobbying their respective governments in France and Germany hard for special arrangements after Brexit and ‘business as usual’ during any transitional arrangement.”

Mr Watson adds that Deloitte’s report shows a hard Brexit would see a £10.98bn (€12.4bn) shortfall by 2019 for the German car Industry, something the nation’s industry would be keen to avoid.

He said: “The German car industry is a very powerful force in the German government and with Angela Merkel already under pressure as coalition talks remain unresolved, any new government will surely want to strongly consider the 800,000 German citizens who work in the automotive industry.

“A Hard Brexit or no deal will hurt the UK but Germany too, both sides will need to seek a constructive arrangement to minimise the negative consequences.”